For a four straight year in a row, I participated in a friendly stock picking competition. The four stock picks that I selected were chosen as if I was choosing long-term investments. As a dividend investor, my holding period is essentially forever unless conditions change at the company that warrant concern.
All of the stock picks I selected make great long term investments because they represent companies that have strong brand names, strong competitive advantages and have plenty of growth opportunities ahead of them. This enables them to record increasing earnings every year, which then trickles down into dividend hikes every year for the loyal shareholders.
The four companies I chose were the same ones as the 2011 selections:
Pepsi (NYSE:PEP) engages in the manufacture and sale of snacks, carbonated and non-carbonated beverages, dairy products, and other foods worldwide. It operates in four divisions: PepsiCo Americas Foods, PepsiCo Americas Beverages, PepsiCo Europe; and PepsiCo Asia, Middle East, and Africa. This dividend aristocrat has rewarded shareholders with dividend hikes for 39 consecutive years. The ten year dividend growth rate is 13.30%, and the current yield is 3.10%. (analysis)
2) Philip Morris:
Philip Morris (NYSE:PM), through its subsidiaries, manufactures and sells cigarettes and other tobacco products. The company has raised distributions each year since the spin off from Altria (NYSE:MO) in 2008. Yield: 3.60% (analysis)
3) Johnson & Johnson:
Johnson & Johnson (NYSE:JNJ) engages in the research, development, manufacture, and sale of various products in the health care field worldwide. This dependable dividend aristocrat has raised distributions for 49 consecutive years. The ten year dividend growth rate is 12.40%, and the current yield is 3.50%. (analysis)
4) Procter & Gamble:
Procter & Gamble (NYSE:PG) provides consumer packaged goods in the United States and internationally. This dividend king has raised distributions for 55 years in a row, which has been accomplished by only eleven companies worldwide. The ten year dividend growth rate is 10.90%, and the current yield is 3.10%. (analysis)
My picks have managed to match or outperform S&P 500 in every year of the competition. This is mostly due to the fact that the past has been a turbulent time for stock investors in general. Dividend investing is a slow and steady approach, which might lag during rapid increases in stock prices but would provide a steady cushion during flat or declining markets.
To most dividend investors however stock prices are of secondary importance. When one is living off dividends, all they are interested in is the sustainability and growth of the dividend income stream generated from their portfolios. The four steady eddies above have managed to boost distributions by 10.50% on average over the past 12 months, and the average yield on all four is 3.30%.
Investors who plan on living off dividends in retirement should own at least 30 individual securities, in order to have adequate diversification of their portfolios.
Full Disclosure: Long PEP, PM,PG ,JNJ